Court: Scientology IRS agreement unconstitutional

In the early 1990s the “Church” of Scientology launched a campaign to be recognised as a religious organisation, and as such be given tax exemption. An article from the New York Times in 1997 described the situation:

*Scientology’s lawyers hired private investigators to dig into the private lives of I.R.S. officials and to conduct surveillance operations to uncover potential vulnerabilities, according to interviews and documents. One investigator said he had interviewed tenants in buildings owned by three I.R.S. officials, looking for housing code violations. He also said he had taken documents from an I.R.S. conference and sent them to church officials and created a phony news bureau in Washington to gather information on church critics. The church also financed an organization of I.R.S. whistle-blowers that attacked the agency publicly.

*The decision to negotiate with the church came after Fred T. Goldberg Jr., the Commissioner of the Internal Revenue Service at the time, had an unusual meeting with Mr. Miscavige in 1991. Scientology’s own version of what occurred offers a remarkable account of how the church leader walked into I.R.S. headquarters without an appointment and got in to see Mr. Goldberg, the nation’s top tax official. Mr. Miscavige offered to call a halt to Scientology’s suits against the I.R.S. in exchange for tax exemptions.


The I.R.S. reversal on Scientology was nearly as unprecedented as the long and bitter war between the organizations. Over the years, the I.R.S. had steadfastly refused exemptions to most Scientology entities, and its agents had focused numerous investigations and audits on the church.

Throughout the battle, the agency’s view was supported by the courts. Indeed, just a year before the agency reversal, the United States Claims Court had upheld the I.R.S. denial of an exemption to Scientology’s Church of Spiritual Technology, which had been created to safeguard the writings and lectures of L. Ron Hubbard, the late science fiction writer whose preachings form the church’s scripture. Among the reasons listed by the court for denying the exemption were ”the commercial character of much of Scientology,” its ”virtually incomprehensible financial procedures” and its ”scripturally based hostility to taxation.”

Small wonder that the world of tax lawyers and experts was surprised in October 1993 when the I.R.S. announced that it was issuing 30 exemption letters covering about 150 Scientology churches, missions and corporations. Among them was the Church of Spiritual Technology.

The specifics of the agreement can be found via Operation Clambake, with further information here.

One effect of the IRS ruling was that a percentage of Scientologists’ “donations” to the organisation for auditing and Scientology training was deemed tax-deductible as a charitable donation. L Ron Hubbard, among other things, is famed for his instruction to Scientology Orgs: “MAKE MONEY, MAKE MORE MONEY, MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MORE MONEY.” Not that I want to cast doubt on the Xenuphobes’ sincerity, of course.

In recent years the Sklar family has been fighting through the courts on the basis of this settlement. Their argument is that the tax breaks given to the Church of Scientology, in allowing otherwise secular education to be treated as tax-deductible religious instruction, should apply to other groups equally – in their case a private Jewish school. This week a judgement came down from the Ninth Circuit Court of Appeals.

The Sklars have been seeking to deduct their payments, going back to the early 1990s, since learning of a settlement between the Internal Revenue Service and members of the Church of Scientology that allows Scientologists to deduct a portion of their payments to the church for auditing and training.

The IRS allowed the deductions sought by the Sklars for 1991 through 1993, apparently because it believed the couple were Scientologists. But when the IRS and the Tax Court said the Sklars’ school payments for 1994 were not deductible, they appealed to the Ninth Circuit, which ruled against them in Sklar v. Comm’r (2002) 282 F.3d 610.

The panel said it was doubtful that their deduction claim was constitutionally permitted, that it was “unlikely” that religious education for children could be considered equivalent to Scientology auditing and training, and that the deduction was not permitted in any event because there was no evidence that the payments the Sklars made exceeded the value of their children’s secular education—the schools offered both secular and religious classes—so none of the money could be considered a religious gift.

As well as the outcome, however, there is the following:

The court agreed with the Sklars that the Scientology settlement violated the Establishment Clause, but said the remedy would not be to make similar payments to other faiths’ institutions deductible.

Will this, perhaps, lead to a review of the cult’s tax-free status in the US? One can only hope.


1 comment so far

  1. AnonLover on

    Goto and vote in Obama’s citizen Briefing Book to Revoke the Tax Exempt Status of the Church of Scientology

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